Rosserlane Consultants Ltd and Another v Credit Suisse International
| Jurisdiction | England & Wales |
| Judge | Lord Justice Christopher Clarke,Lord Justice Henderson,Lady Justice Arden,and |
| Judgment Date | 24 February 2017 |
| Neutral Citation | [2017] EWCA Civ 91 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 February 2017 |
| Docket Number | Case No: A3/2015/1012 |
[2017] EWCA Civ 91
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
Mr Justice Peter Smith
HC1200030
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Christopher Clarke
and
Lord Justice Henderson
Case No: A3/2015/1012
Ali Malek QC, Ewan McKendrickQC and Ian Higgins (instructed by Gordan Dadds LLP) for the Appellants
Helen Davies QC and Alec Haydon (instructed by Herbert Smith Freehills LLP) for the Respondent
Hearing dates: 17 th and 18 st January 2017
The Kurovdag Oil and Gas field is the largest on-shore oil and gas project in Azerbaijan. At the time to which these proceedings relate it was operated by "Shirvan Oil" Joint Venture Limited Liability Enterprise ("Shirvan"), an Azerbaijani company. Shirvan was owned as to 49% by the State Oil Company of Azerbaijan ("SOCAR"). As to 51% it was owned by Caspian Energy Group Limited Partnership ("CEG"). CEG was, ultimately, owned beneficially by Dr Zaur Leshkasheli. Its immediate owners were Rosserlane Consultants Ltd ("Rosserlane") and Swinbrook Developments Ltd ("Swinbrook"), the Appellants.
On 21 December 1995 SOCAR entered into a joint venture agreement with CEG's predecessor in title for the development of the field.
The 14 December 2006 Agreements
On 14 December 2006 CEG entered into three agreements: (i) a Loan Agreement; (ii) a Security Agreement; and (iii) a Participation Agreement.
Under the Loan Agreement, made between CEG (amongst others) and Credit Suisse International, the Respondent ("the bank"), the bank made two loans to CEG of $ 115,000,000 and $ 12,000,000, making $ 127 million which were repayable on 14 December 2007. The loans replaced a loan facility with another party which was due to expire on 15 December 2006.
Under the Security Agreement the Appellants and CEG, among others, granted to Credit Suisse London Branch, which apparently refers to the London Branch of a company named Credit Suisse AG, as Security Agent, security over all their assets in respect of, inter alia, the liabilities of CEG to the bank.
Under the Participation Agreement CEG was precluded from selling its equity interest in Shirvan or procuring a sale of the assets of Shirvan without the written consent of "the bank": clause 2.1. In the event of a sale Credit Suisse was entitled, in addition to repayment of the loan, to 27% of the sale proceeds in excess of $ 180 million and 12% in respect of the excess over $ 400 million: clauses 3.2 and 3.3.
Under clause 4 it was open to the bank to force a sale of, inter alia, the Appellants' interest in CEG if there had been no sale thereof within 8 months i.e. by 14 August 2007 (the "Trigger Date"), provided that the sale proceeds from such sale were not less than $ 180m.
Clauses 4.1 and 4.2. provided:
"4.1 If by the date which falls eight months after the date of this Agreement (the "Trigger Date") no Sale of 100% of the Equity Interests of one of the Equity Owners or of 100% of the Assets has irrevocably completed, the Bank shall be entitled to force the Equity Owners to Sell, or procure the Sale of, the Equity Interests or the Assets (in whole or in part) to any purchaser provided that the Sale Proceeds from such sale are not less than $ 180,000,000 ("Forced Sale").
4.2 For the purposes of effecting a Forced Sale, each of the Equity Owners
4.2.1 hereby irrevocably appoints the Bank as its attorney to execute and do in its name or otherwise and on its behalf all documents, acts, deeds and things which the Bank shall in its absolute discretion consider necessary or desirable in order to implement the Forced Sale,
and4.2.2 shall entitle the Bank to be involved in all aspects of the Forced Sale including liaising with the Equity Owners' advisers (financial, legal or otherwise) and coordinating the Forced Sale with the Equity Owners and their advisers"
Clause 5.4 provided that:
"Each Equity Owner shall use all reasonable endeavours to solicit purchasers for the Equity Interest and/or Assets [i.e. in or of CEG] and complete a sale as soon as practically possible".
On 14 May 2007 the Participation Agreement was varied so as to add clause 5.5 which required the Appellants to use all reasonable endeavours to procure a Sale at the best price obtainable to maximise the Equity Upside Payment i.e. the payment provided for by clauses 3.2 and 3.3 of the Participation Agreement.
The issues in the appeal
The bank exercised its rights under clause 4 and forced a sale of CEG to Berghoff Trading Limited for $ 245,000,000 on 15 February 2008. The Appellants claim that, when it did so, the bank came under a duty to take reasonable precautions and exercise reasonable care so as to seek to obtain the best price reasonably obtainable, or, alternatively, a fair, true and proper price for CEG. The duty was said to arise since a term to that effect was to be implied in the Participation Agreement, either because it was an incident implied by law into a relationship of this kind, where someone takes it upon himself to act so as to dispose of the property of another, or because the bank came to act as an agent, or because such a term was necessarily to be implied in the circumstances of the present case.
Peter Smith J found for the bank on two grounds. First he held that no such duty arose. Second, he held that, even if the bank owed the relevant duty and was in breach of it because they had taken no steps to present the prospect of a sale to potential Russian buyers, the appellants could not establish that they had lost the chance of securing a sale to Gazprom Neft, the failure to achieve which was the basis of the Appellants' claim. This was because, although Gazprom Neft would have been interested in a purchase, if the opportunity had been presented to them in September 2007, they would not have made a firm offer without a site visit and the Appellants/CEG would not have permitted such a visit. But for that he held that the Appellants would have had a 65% chance of securing a bid from Gazprom Neft for $ 400,000,000.
The Appellants contend that the judge was wrong to find that there was no such duty (issue 1) and wrong to find that the Appellants would not have permitted Gazprom Neft a site visit (issue 2).
We decided that we would hear argument on the second issue first. In the light of that argument we have decided that the judge was entitled to reach the conclusions that he did. It is common ground that, if that is so, the appeal must fail and it is not necessary to consider the first question. This judgment explains how I reached my conclusion on the second issue.
The second issue gives rise to three points (a) did Dr Leshkasheli and thus CEG have a policy about site visits and, if so, what was it; (b) would Gazprom Neft be treated as an exception to any policy against site visits; and (c) would the bank have overridden that policy.
The history
The first M & A Process
On 13 December 2006 Dr Leshkasheli and CEG had retained Credit Suisse Securities (Europe) Ltd (" CSS") as an adviser in respect of the disposal of all or part of the assets or stock of CEG. Between January and May 2007 CSS identified some 45 companies to whom teasers were sent and 39 companies were approached. The process laid down contemplated indicative offers to be followed by firm offers: see [34] below. In the first phase, only 4 of those approached – (a) ONGC/OVL/OMEL; (b) Petrovietnam; (c) PCG Turicum; and (d) PKN Orlen made indicative offers. Only ONGC made a firm offer which was for $ 300 m (with a further $ 50 m on recovery of the upfront investment). The first two sought a site visit after they had made an indicative offer. PCG Turicum asked for a site visit before they made an indicative offer. No site visit was afforded to any of the three. In the event the ONGC bid, which was conditional on SOCAR's consent, was not pursued and no offers acceptable to the Appellants materialised.
The Trigger Letter.
By a letter dated 14 August 2007 the bank notified CEG that it was taking over the coordination of the sale process. Thereafter, as the judge held, rejecting evidence to the contrary, it was the bank which was " in reality in control of the sales process" [172] and CSS was reporting to the bank in priority to CEG [179]. The Fixed Interest Division ("FID") of the bank was the final determiner of who was approached and what terms were agreed and accepted [183].
The second M & A Process
The second M & A Process, with the bank in control, lasted until February 2008. Meanwhile the loan to CEG fell due on 14 December 2007. By that date no one had made a final bid for CEG. By an agreement of that date an extension of the time for repayment of the loan to 15 February 2008 was agreed in return for a further fee of $ 10 million and an increase in the 27% figure for the equity uplift to 33%.
During this period 89 potential bidders were contacted. Of these four made firm offers for between $ 230 m and $ 324 m. The $ 324 m was offered by Petrovietnam but was subject to the condition that SOCAR consented. Only 2 of the bidders – Berghoff and BSG — were prepared to pay on the basis of a forced sale (where no warranties would be available).
In the end, as I have said, CEG was sold to Berghoff for $ 245 m, the highest price on the basis of a forced sale.
Gazprom Neft
The bank identified Gazprom Neft as a potential bidder as early as 14 August 2007 [194]. In September 2007, the bank's internal documentation identified Gazprom Neft as " not interested" in the first M & A process. But the bank conceded that Gazprom Neft was not contacted [204] and the judge concluded that it did not contact any...
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